1.
If company A has a higher degree of operating
leverage than company B, then:
A. company
A has higher variable expenses.
B. company A's profits
are more sensitive to percentage changes in sales.
C. company
A is more profitable.
D. company
A is less risky.
2.
Which of the following would a manufacturing
company expect to experience as it automates and shifts from variable expenses
to fixed expenses?
A.
A lower margin of safety percentage.
B.
A higher contribution margin ratio.
C.
A steeper total expenses line on its cost-volume-profit graph.
D. Both A and B above.
3.
Marston Enterprises sells three
chemicals: petrol, septine, and tridol. Petrol's unit contribution margin is
higher than septine's which is higher than tridol's. Which one of the following
events is most likely to decrease the company's overall break-even point?
A.
The installation of new
computer-controlled equipment that reduces variable costs and increases fixed costs.
B.
A decrease in tridol's selling price.
C.
An increase in the overall market demand
for septine.
D. A change in the
relative market demand for the products, with the increase favoring petrol
relative to septine and tridol.
4.
Last year, Twins Company reported
$750,000 in sales (25,000 units) and a net operating income of $25,000. At the
break-even point, the company's total contribution margin equals $500,000.
Based on this information, the company's:
A.
contribution margin ratio is 40%.
B.
break-even point is 24,000 units.
C. variable expense per
unit is $9.
D. variable
expenses are 60% of sales.
Feedback: Solve backwards for contribution margin and
then variable costs:
*Given
**At the break-even point,
fixed expenses = contribution margin, so we know that fixed costs are $500,000.
Before going any further, it
can be seen that variable expense per unit is
$9.
1)
In general, if inventory increases during
an accounting period,
A)
variable costing will report less
operating income than absorption costing.
B) absorption
costing will report less operating income than variable costing.
C) variable
costing and absorption costing will report the same operating income.
D) None of
the above are correct. Answer: A
Diff: 3
Terms: absorption costing
Objective: 2
AACSB: Analytical
skills
2) At the
end of the accounting period Bumsted Corporation reports operating income of
$30,000. If Bumstead's inventory
levels decrease during the accounting period
A)
variable costing will report less
operating income than absorption costing.
B) absorption
costing will report less operating income than variable costing.
C) variable
costing and absorption costing will report the same operating income.
D) None of
the above are correct. Answer: B
Diff: 3
Terms: variable costing
Objective: 2
AACSB: Analytical
skills
3) Given a
constant contribution margin per unit and constant fixed costs, the
period-to-period change in operating
income under variable costing is driven solely
by:
A)
changes in the quantity of units actually sold
B) changes
in the quantity of units produced
C) changes
in ending inventory
D) changes
in sales price per unit Answer: A
Diff: 3
Terms: variable costing
Objective: 2
AACSB: Reflective
thinking
4)
Many companies have switched from
absorption costing to variable costing for internal reporting:
A)
to comply with external reporting requirements
B) to increase
bonuses for managers
C) to
reduce the undesirable incentive to build up
inventories
D) so the
denominator level is more accurate
Answer: C
Diff: 2
Terms: variable costing,
absorption costing Objective: 3
AACSB: Analytical
skills
5)
Ways to "produce for inventory"
that result in increasing operating income include:
A)
switching production to products that
absorb the least amounts of fixed manufacturing costs
B) delaying
items that absorb the greatest amount of fixed manufacturing costs
C) deferring
maintenance to accelerate production
D) All of
these answers are correct. Answer: C
Diff: 2
Terms: absorption costing
Objective: 3
AACSB: Reflective
thinking
6) Switching
production to products that absorb the highest amount of fixed manufacturing
costs is also called:
A)
cost reduction
B) cherry picking
C) producing
for sales
D) throughput
costing Answer: B
Diff: 2
Terms: absorption costing
Objective: 3
AACSB: Reflective
thinking
7)
To discourage producing for inventory,
management can:
A)
evaluate nonfinancial measures such as
units in ending inventory compared to units in
sales
B) evaluate
performance over a three- to five-year period rather than a single year
C) incorporate
a carrying charge for inventory in the internal accounting system
D) All of
these answers are correct. Answer: D
Diff: 2
Terms: absorption costing
Objective: 3
AACSB: Reflective
thinking
8)
Which method is NOT a way to discourage
producing for inventory?
A)
incorporate a carrying charge for inventory
B) focus on
careful budgeting and inventory planning
C) include
nonfinancial measures when evaluating performance
D) evaluate
performance on a quarterly basis only Answer:
D
Diff: 2
Terms: absorption costing
Objective: 3
AACSB: Reflective
thinking
9) Under
absorption costing, if a manager's bonus is tied to operating income, then
increasing inventory levels compared to last year would result in:
A)
increasing the manager's bonus
B) decreasing
the manager's bonus
C) not
affecting the manager's bonus
D) being
unable to determine the manager's bonus using only the above information Answer: A
Diff: 3
Terms: absorption costing
Objective: 3
AACSB: Reflective
thinking
10) Under
variable costing, if a manager's bonus is tied to operating income, then
increasing inventory levels compared
to last year would result in:
A)
increasing the manager's bonus
B) decreasing
the manager's bonus
C) not
affecting the manager's bonus
D) being
unable to determine the manager's bonus using only the above information Answer: C
Diff: 2
Terms: variable costing
Objective: 3
AACSB: Reflective
thinking
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